ABSTRACT
This chapter argues that public economics has remained too imprisoned in the way that policy issues are analysed. Standard approach of public economics is too narrow and needs to be extended. In public economics, the equivalent assumption would be that the government can levy any form it chooses of differentiated lump sum taxes. The merging of tax and social security contributions may offer new revenue opportunities. A zero tax on capital would be a serious limitation on the capacity of governments to raise revenue as part of fiscal consolidation. In public economics, the overlapping generation's model has been employed to examine the optimal taxation of capital income. The targeting of benefits is often proposed as a means of scaling back public spending. The major source of concern is that public economics has been insufficiently reflective about its normative foundations and their relation to individual behaviour. Public policy is evaluated according to its impact on individual utility.
